An extraordinary 18 percent of Realtors have experienced contract failures in the last few months according to the National Association of Realtors (NAR). This is double the levels of a year earlier. One of the top reasons that cause these contract cancellations is credit issues. In many cases, understanding how the credit system works would help buyers avoid problems. Utilizing a mortgage banker early in the home buying process can help educate buyers about activities that improve their credit score, such as paying bills on time. They can also learn what actions to avoid, including taking on new sources of debt like buying a car or getting a new credit card before applying for a mortgage.
WHAT IS A CREDIT SCORE?
Simply stated, credit scores are a statistically-based tool to assess the future performance of a borrower. Scores are derived from the history of a borrower as it is reported to the credit repositories from any creditor. Credit scores are a proven indicator of the likelihood to repay a loan or credit obligation. The lower the score; the more risk from a borrower to repay a loan, on time and in full. Scores range from 400 to 850. This process was started by Fair, Isaac and Co., which is why credit scores are also called FICO scores. Scoring factors are “blind” and do not consider anything about an individual other than their creditworthiness.
WHAT AFFECTS A CREDIT SCORE?
Keeping a manageable amount of debt and paying on time are ways to positively affect a credit score. Bankruptcy, judgments, collections, high credit balances relative to high credit limits and recent late payments affect scores. Closing or opening accounts can also have a significant impact along with high credit balances relative to credit limits.
Credit inquiries can ‘ding’, or lower your score. However, any inquiries from one industry within a 30-day period count only once. For example, if a consumer is car shopping and visits three dealers in two weeks who check the consumer’s credit, this only counts as one inquiry and has a minor affect on the credit score.
MORTGAGES AND CREDIT SCORES
Underwriters use credit scores as a factor in determining loan approval. This is not the only factor considered, but a credit scores plays a significant role in the loan decision. Good credit pays off. Some loan programs have credit score requirements or offer lower rates for higher credit scores.
Home buyers with scores below 640 may incur higher rates, additional fees and tougher underwriting. Mitigating circumstances can help your approval process if you have credit issues.
Before the homebuyer starts shopping for their dream home, be sure to contact a mortgage banker and review the credit history. Keep in mind, another credit review will be considered 72 hours before closing: do not open/close or cause any significant changes to your credit until the transaction closes.
HOW CAN YOU OBTAIN A COPY OF YOUR CREDIT REPORT?
Under federal law, you have the right to obtain a free copy of your credit report from each of the nationwide consumer reporting agencies once a year. To order you’re your free annual report:
By telephone: 1-877-322-8228
On the web: Visit www.annualcreditreport.com
Paramount Mortgage is a locally owned Mortgage Banker celebrating our 41st year. Great rates and programs are secondary to what is most desired in a lender relationship: Integrity, Communication and Customer Satisfaction. Be to check out our website: www.paramountmortgage.com
For more information or if you have questions on mortgage rates you may contact me by phone at my direct line, (314) 372-4319, email at firstname.lastname@example.org or you can visit our company website at http://www.paramountmortgage.com.